THE PEOPLE’S Bank of China (PBoC) announced yesterday that it has successfully inked a swap arrangement with the European Central Bank (ECB).
The move represents the latest stage of the renminbi’s transition to an international currency, as the growth of China’s economy requires the expansion of the use of its currency.
Although the currency is not freely convertible, Western authorities hope the steady stream of bilateral deals will help globalise the renminbi.
The agreement between the pair will see the central banks buy and repurchase renminbi and euros from each other, making the currencies available to banks in the different currency zones.
It will last for three years and have a maximum size of €45bn (£8.1bn), where euros are provided to the PBoC.
And where the PBoC is offering renminbi to the ECB, the maximum size will be RMB350bn.
“The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets,” the ECB said in a statement.
European banks should be reassured by the move, the ECB hopes, as they will have a continuous provision of the Chinese currency.
Without the deal, banks could be left vulnerable to shortages of liquidity when trying to settle trades or deals in the Chinese currency with their customers, clients and other banks.
“It has been established at the level of the Eurosystem and will be available to all Eurosystem counterparties via national central banks,” the ECB said.
“The governing council will, in due course, discuss the technical modalities with which this backstop liquidity facility will be made available and how these technical modalities will be communicated.”
The arrangement comes after a similar deal in the summer with the Bank of England, which fits in with Treasury plans to make London an international hub for renminbi trade and services.
Brazil, Japan, Australia and Hong Kong also have bilateral swap deals in place with the PBoC.